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Mansions Go Under the Gavel

An auction of his home and all its contents raised less than the $3 million Jack Warner needed to avoid bankruptcy. Credit
Maggie Steber for The New York Times

LITTLE TORCH KEY, Fla. — Jack Warner leaned against his home bar and checked his watch before resuming his blank stare at the white tent outside his multimillion-dollar dream house, with its swimming pool and views of the Florida gulf, soon to be sold at auction.

“My whole life happens in two hours,” he said. “I feel like I am playing the part of Old Yeller,“ wondering if he will survive financially or perhaps just be put out of his misery, like the fictional dog. An auction, and having people traipse through a house in previews before bidding, smacks of desperation. But increasingly, people with multimillion-dollar homes who need to raise money are discovering they have few alternatives, as the luxury real estate market is especially moribund.

“We are seeing more people with homes that were on the market for $4 million to $7 million that are not selling and they are calling us,” said Jim Gall, president of Auction Company of America.

Mr. Warner, 61, bought his house and an adjacent property that once had a trailer park on Little Torch Key, north of Key West, in 1993. It was appraised at nearly $14 million just two years ago. But after losing a large amount of money, he liquidated his construction business in Elkhart, Ind. Last year, another company he owned, Lucky’s Landing, which essentially owned his Florida real estate, filed for bankruptcy protection and its assets came under court oversight.

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The two-story waterfront home of Jack Warner which was sold during absolute auction Sunday, July 19, 2009.Credit
Maggie Steber for The New York Times

When no buyer emerged at the listing price of $5.9 million, Mr. Warner asked the United States Bankruptcy Court in Miami to approve the property’s sale at auction. He had a lot riding on the request. To avoid personal bankruptcy, he said, the sale had to generate more than $3 million, roughly the remaining amount of the mortgages.

Even in the boom years, luxury homes occasionally sold at auction. Perhaps a house had a celebrity background that might drive people to bid up the price, or maybe a savvy marketer saw a way to drum up publicity for a unusual property. Miramar, a Gilded Age estate in Newport, R.I., was commissioned by George D. Widener, a railway magnate who died on the Titanic. It was sold at auction in 2006 for about $18 million after languishing on the market for about three years.

Henry R. Kravis, the New York financier, prepared his 3,300-acre property near Meeker, Colo., for auction in 2004 after it had been on the market for two years. Just before the auction, though, he struck a $16.5 million deal with Greg Norman, the pro golfer and golf course designer.

As the real estate market began to soften in 2007, a few attempts were made to auction large numbers of high-end properties. For example, Sky Sotheby’s International Realty held an auction of 20 homes with an average value of $3.5 million in Sarasota, Fla. “But that strategy was unusual,” recalled Chad Roffers, then the president of Sky Sotheby’s.

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Jack Warner watches the auction of his home and possessions. The house and adjacent property were appraised at nearly $14 million two years ago.

Then the housing market collapsed. Now, owners of trophy homes have to decide whether to take the plunge, and in some cases they are being pushed by creditors or the courts.

”We have been getting calls from Aspen, Palm Beach and the Hamptons and California,” said Alan Kravets, president of Sheldon Good & Company, an auction firm. “Last year, we sold a number of homes in the $2 million to $5 million range for Americans who had listed them and not been able to sell them.”

Stacy Kirk, who together with her mother co-founded Grand Estates Auction Company in 1999 to handle multimillion-dollar homes exclusively, said her business had grown to 30 homes last year, from 20 homes sold in 2005. “We have been receiving more inquiries from homeowners in the $1.5 million and up price range,” she said. “And we are talking to banks for the first time about whether we can help sell similarly priced homes that are headed for foreclosure.”

To help drum up interest, some auctioneers use the term “absolute” auction, meaning there is no minimum price and the seller agrees to accept the highest bid, no matter how low.

Mr. Gall, of Auction Company of America, used that technique for Mr. Warner’s property in Little Torch Key. Just 12 bidders produced cashier’s checks of $100,000 to get into the auction, where the mood was muted at best.

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Jim Gall of Auction Company of America takes bids on artwork beneath a tent outside of Mr. Warners home.Credit
Maggie Steber for The New York Times

The day before the auction of the property, Mr. Gall auctioned off the contents, including artwork, furnishings and tools, for about $47,000.

Auction companies stand to make a healthy fee. At Little Torch Key, the buyer paid the firm an additional $250,000, or 10 percent more than the auction price. A real estate agent who has had a property listed for some length of time may get a cut as well.

When Grand Estates sold a Nantucket home at auction in July, the price was $5.2 million, slightly less than the $5.4 million paid in 2004 by the owner, Paul C. Steinfurth, a real estate executive who lives in Miami. The proceeds covered his $3 million mortgage and the 6 percent cut, or $312,000, that went to the auction house.

Ms. Kirk, who heads Grand Estates, said that she used an absolute auction because “there are so many properties out there and to get the most number of buyers there, you need to sell absolute.”

William Bone, president of the National Auction Group in Gadsden, Ala., said that his company primarily handled absolute auctions because they ensured that a sale would take place.

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A bronze statue of a boy climbing a tree was one of the items auctioned.Credit
Maggie Steber for The New York Times

But some experts are skeptical about absolute auctions. Jim Randel, author of “The Skinny on Real Estate Investing,” said that auction companies might “protect themselves with a straw man,” he said. “Essentially, a phony bidder could step in and bid to ensure a minimum price and the house could revert back to the owner.”

Mr. Bone dismissed such suggestions, saying “if somebody does that, we don’t get a commission.”

Though Sotheby’s International Realty does not do auctions, it has had relationships with companies that do.

This year it struck an agreement with Concierge Auctions, a two-year-old company. In July, Concierge auctioned four Florida properties, including an eight-bedroom waterfront home in Ponte Vedra Beach that had been on the market for two years for $5.9 million. The sale price has not been disclosed.

Laura Brady, Concierge’s president, said that her strategy was to take on only a handful of expensive homes.

“But the motivation and the expectation has to be managed well,” said Michael R. Good, Sotheby’s president. “We are not in the business of trying to under-deliver.”